Repayment Terms for Bridging Loans
Repayment terms refers to the agreed-upon repayment plan, including whether the loan requires monthly interest payments or if it allows for deferred interest until the end of the loan term.
A bridging loan is a short-term loan taken out to fill a gap between a customer’s existing and long-term financing. These short-term loans are commonly used by borrowers to make a big purchase before securing permanent financing.
The Repayment Terms are the conditions by which the borrower agrees to repay the loan. It includes the total loan amount, interest rate, exit strategy, and any additional fees.
Understanding the Repayment Terms of a Bridging Loan is essential before taking out the loan to avoid default and the long-term financial difficulties.
The Total Loan Amount
The Total Loan Amount is the total amount the borrower will receive from the loan. This includes all fees, such as closing fees, origination fees, and other fees associated with the loan. The Total Loan Amount may also include an amount set aside for potential interest accrual or fees for a late repayment. Generally, the Total Loan Amount is the same as the loan amount requested.
Interest Rate
The interest rate is the charge a lender will charge a borrower for accessing and using the loan. Interest rates for bridging loans can be either fixed or variable depending on the agreement between the lender and the borrower. Fixed interest rates remain the same throughout the loan’s repayment period, while variable interest rates may change depending on external financial factors.
Repayment Schedule
The Repayment Schedule is the timeline by which the borrower is obligated to make payments on the loan. Schedules are typically set up either in monthly or quarterly payments, depending on the agreement between the lender and the borrower. The payment schedule should be communicated to the borrower up-front and thoroughly considered before agreeing to the loan.
Additional Fees
Bridging loans often come with additional fees that the borrower is obligated to pay. Examples of additional fees include closing fees, origination fees, and late fees. The additional fees are typically disclosed to the borrower prior to signing the loan agreement and should be taken into account when calculating loan affordability.
Final thoughts
It's relatively easy to find out what happens if you don't repay your bridging loan as this information will be set out in your loan agreement. Understanding your Repayment Terms before taking out a Bridging Loan is essential to successfully paying off the loan. When taking out any type of loan, ensure that you understand all the conditions of the loan before agreeing to them.
Knowing the Total Loan Amount, Interest Rate, Repayment Schedule, and any Additional Fees will help you calculate the affordability of the loan and set you up for successful repayment.
